Correlation Between Maeil Dairies and Neo Cremar
Can any of the company-specific risk be diversified away by investing in both Maeil Dairies and Neo Cremar at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Maeil Dairies and Neo Cremar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Maeil Dairies Co and Neo Cremar Co, you can compare the effects of market volatilities on Maeil Dairies and Neo Cremar and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Maeil Dairies with a short position of Neo Cremar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maeil Dairies and Neo Cremar.
Diversification Opportunities for Maeil Dairies and Neo Cremar
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Maeil and Neo is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Maeil Dairies Co and Neo Cremar Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Cremar and Maeil Dairies is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Maeil Dairies Co are associated (or correlated) with Neo Cremar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Cremar has no effect on the direction of Maeil Dairies i.e., Maeil Dairies and Neo Cremar go up and down completely randomly.
Pair Corralation between Maeil Dairies and Neo Cremar
Assuming the 90 days trading horizon Maeil Dairies Co is expected to under-perform the Neo Cremar. But the stock apears to be less risky and, when comparing its historical volatility, Maeil Dairies Co is 4.9 times less risky than Neo Cremar. The stock trades about -0.3 of its potential returns per unit of risk. The Neo Cremar Co is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 555,000 in Neo Cremar Co on November 3, 2024 and sell it today you would earn a total of 105,000 from holding Neo Cremar Co or generate 18.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Maeil Dairies Co vs. Neo Cremar Co
Performance |
| Timeline |
| Maeil Dairies |
| Neo Cremar |
Maeil Dairies and Neo Cremar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Maeil Dairies and Neo Cremar
The main advantage of trading using opposite Maeil Dairies and Neo Cremar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maeil Dairies position performs unexpectedly, Neo Cremar can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Neo Cremar will offset losses from the drop in Neo Cremar's long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Maeil Dairies as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Maeil Dairies' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Maeil Dairies' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Maeil Dairies Co.
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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